Beyond the Supply Chain: The Impact of RFID on Business Operations and IT Infrastructure

Another technology is coming straight at you, and while it may not considered a priority or even applicable to your company, it has the potential to profoundly impact your business and IT infrastructure.

That technology is radio frequency identification, usually known as RFID. What is RFID? Essentially, it's composed of two main elements: an RFID "tag," which is a microchip for information storage and an antenna, and an RFID reader or "interrogator" that reads the information on the tag from distances ranging from inches to dozens of feet.

The information on the tag can contain everything from a read-only unique identifier, such as an Electronic Product Code, to a continually updated history of the product, asset, document, animal or person to which the tag is attached. This information in turn is tied to back-office databases that, with the proper real-time and off-line analysis tools, can provide major benefits, not just in the supply chain but also in safety and security, asset management and process improvement.

While RFID technology has been around a long time, growth and applications were limited by high tag costs, which depending on the technology could approach several dollars per tag or much more for specialized applications.

The environment changed dramatically in late 2003 and early 2004 as various entities, led by Wal-Mart Stores Inc. and the U.S. Department of Defense, established RFID mandates that their major suppliers must meet to do business. These mandates are playing a major role in accelerating the cost declines and improving the performance of the technology. This is enabling the application of RFID well beyond the traditional supply chain of manufacturing, warehousing and distribution.

The Wal-Mart and DOD mandates -- technology and quality standards and implementation deadlines -- have pushed RFID from the proverbial minor leagues to the World Series. For these entities, RFID supplements product bar codes and may eventually replace many of them. It enables pallet, container and even item-level tracking throughout the store or facility, reducing out-of-stock situations, loss and theft. And it generally improves inventory management and real-time integration with suppliers.

The ripple effect is becoming enormous, with nearly all suppliers, including ones not officially required to adhere to the mandates, starting to aggressively pursue RFID and in turn demanding that their suppliers begin preparing for RFID deployment.

Applied Business Intelligence estimates that tag purchases will grow from 323 million units in 2002 to 1.62 billion in 2008. With such a guaranteed base of business, RFID manufacturers have accelerated their efforts, greatly improving the technology and driving down tag and reader costs.

The cost of many of the most frequently used tags is approaching 10 cents, with the long-sought goal of 5 cents or less likely in a few years. Reader costs are similarly dropping. This is allowing RFID to become a cost-effective enabler for new business applications, where IT executives can take the lead to achieve a new generation of major business benefits.

Impact on Business Operations

The opportunities enabled by RFID beyond the supply chain fall into three categories: safety and security, mobile asset management and complex process simplification. Each applies in various degrees to a wide range of industries; in fact, there are few industries that won't be affected by RFID technology in some respect.

  1. Safety and Security

    There are two business benefits within the safety and security category. The first is the reduction or elimination of theft and counterfeiting. Equipment such as laptops and handheld devices can be tracked and traced, providing a deterrent to theft and a recourse for recovery.

    Companies that lose millions due to piracy, such as DVD, software and luxury goods manufacturers, can insert tags designed to authenticate the products for retailers and provide a deterrent to counterfeiters.

    In addition, RFID can also be applied to important, sensitive or valuable documents, providing document security and also avoiding productivity-consuming searches for missing files, a hazard common in many paper-intensive entities such as financial services companies and government agencies.

    The second dimension is human security, particularly in human identification and authorization. Sadly, photo identification alone is no longer much of a deterrent to people determined to enter secure facilities. A badge with an RFID tag containing additional identification/authorization information, scanned by a reader tied to a secure access database, greatly improves security.

    Human safety is also enabled by RFID. In hospitals, it's of course critical to ensure that the correct medicine or procedure is given to the correct patient. Unfortunately, even with the ubiquitous wristband identification, mistakes are made. Patient RFID tags can help prevent them. People who can't identify themselves, such as infants and Alzheimer's patients, can benefit both in and out of the hospital.
  2. Mobile Asset Management

    Many industries have many millions of dollars invested in mobile/moveable assets that are needed for internal operations or to serve customers. While managing portable computers is an obvious application, there are many others. Ports have thousands of containers moving through daily, university campuses have all sorts of research and teaching equipment, construction sites have dozens or hundreds of specialized tools and vehicles, the military has many billions of dollars in weapons and support equipment, and the U.S. Department of Homeland Security is investing heavily in all types of new security equipment, most of which is mobile.

    Often, the amount of time such equipment is in actual use, known as asset utilization, is quite low, sometimes due to lack of information about its whereabouts or condition. This comes at a significant financial cost, either in the form of important assets being unavailable when needed or the perceived scarcity resulting in overspending on assets to ensure availability. Equipment that can't be found is listed as lost and written off, or if rented then replaced at full cost. Devices that require periodic upkeep become unusable if not maintained.

    Hospitals are an excellent example of the financial impact of poor mobile asset management. Dr. I. Mun, director of biomedical research at Aventura Hospital and Medical Center in Florida, speaking at the April 2005 RFID Journal Live Conference, estimated that the average hospital's mobile medical equipment is only 45% utilized, that 5% to 15% is written off each year as "lost" (this includes equipment not serviced) and that there is $1 million a year in equipment theft. This cost can be aggravated by incorrect usage due to lack of asset history, such as devices that must be decontaminated after each use. Using RFID for mobile asset management is often the easiest business case to develop and is readily applicable to a wide range of industries.
  3. Complex Process Simplification

    Complex process simplification using RFID technology can offer particularly important benefits to many enterprises. Many organizations have processes and workflows with a lengthy "chain of custody," where a product, asset, document or even a person is "touched" by many different people and/or pieces of equipment at different times, with few if any being involved from beginning to end.

    At each touch point, the amount of immediately available information is often limited to what happened in the previous step in the process and what's supposed to happen next. This limited view of information can introduce inefficiencies in the overall process when information about other steps is needed to execute the current step, as records are sought, people are called and equipment is examined, all introducing delays.

    Hospitals again are an excellent example, with many people, mobile assets (such as beds, equipment and drugs) and locations (like admissions, the emergency room, the operating room, the intensive-care unit and the recovery room) and associated documents involved at various points in the overall patient-care process. Mistakes are sometimes made, but much more frequently, productivity is lost trying to ensure that no mistakes are made by "doubling back," or looking for information about previous steps. RFID tags that can be updated with the patient's history and intended treatments with every step in the process could greatly simplify the process.

Impact on IT Strategy

To realize the benefits of RFID, IT will need to upgrade its infrastructure in a number of areas, and the interfaces with the business will have to be closer than ever before. There are three areas that will be need to be addressed: data management, network and end-user device management, and a new category for many IT organizations, sensor management. In addition, tying all these together and integrating them with legacy systems will require a new level of systems integration capabilities.

Data Management

The amount of new data generated from RFID will be enormous. Today's systems and supporting data infrastructure often focus on the latest status or end state of a product, asset or person. To support RFID, this data model must be expanded to capture additional information around and about events: the state before, during and after each step; the people and assets involved; the conditions at the time; and key measurements and metrics.

IT will need to decide whether to integrate this additional information into the existing corporate data infrastructure or develop a separate management structure. Business-rule definition and data analysis capabilities must be upgraded, as data and events need to be analyzed as close to real time as possible to provide the intelligence and monitoring necessary to make processes more efficient and avoid or quickly correct mistakes and problems.

Depending on the industry and the business operations affected, the IT organization may find itself pushed toward a more decentralized computing and data management infrastructure than it would otherwise have planned. Finally, data security, privacy and storage will pose new challenges due to the volumes and real-time sensitivities involved, particularly with human track-and-trace applications.

Network and End-User Device Management

A great variety of data extracts and information views will need to be made available throughout RFID-impacted operations. As often as not, the end users of this information won't be at desktop computers, but mobile, requiring deployment of wireless LANs and other remote connections in areas not being addressed today.

In addition, information views will be need to be constructed assuming that a handheld computer, BlackBerry device or even a cell phone will be the recipient's platform of choice for receiving information and providing updates. These compact platforms will require new thinking in how to process a great deal of data in ways that provide essential information to the user yet doesn't filter it excessively, in a readily useable format. For location data, geographical information systems can play an important role in graphically depicting large volumes of information in a concise manner.

Sensor Management

IT organizations will need a new set of capabilities and skill sets to manage the proliferation of RFID readers and tags and to understand the processes within which they operate. To effectively provide sensor management, IT needs to ensure that standards are set for tags, readers and how they are deployed.

Different applications may require different standards on dimensions such as system frequency, read range, passive vs. active tag power, accuracy, reliability, placement, polling frequency and environmental conditions.

Maintaining and repairing readers will also be a new capability, and the speed of repair will become an important metric. Also, certain applications will require multiple readers near one another, sometimes resulting in conflicts and troubleshooting delays.

In repair situations, it will be important to have a backup or contingency process in place to ensure uninterrupted operations. IT is the logical entity to take the lead in designing and implementing such processes. IT professionals will need to become much more proficient in business operations then they have been historically. RFID will push IT into many corners of the business where before it may have only been involved peripherally.

Systems Integration

The challenge of tying all the piece parts of RFID together in a smooth and reliable manner will perhaps be the greatest challenge for IT organizations. In many ways, deploying RFID is like deploying a whole new IT infrastructure, with new data sources, processing mechanisms, recipients, network capabilities implemented where none were previously needed and a new category of devices to communicate with and manage.

That doesn't mean legacy systems won't be involved. On the contrary, many RFID applications will need sophisticated interfaces to ERP and other operations support systems. For example, hospitals will need to interface their RFID systems with legacy hospital information systems, picture-archiving and communications systems, electronic medical record systems and computerized physician order-entry systems.

Perhaps most important, a new level of business-process understanding will be required, and deep operational ties will be needed between IT and the business. IT professionals must fully understand the technology and the business operations to which it will be applied; they no longer have the luxury of being at the periphery of how the business operates.


There is a tremendous amount of business and IT planning and preparation that needs to be done to support the impact that RFID will have on business operations and support infrastructure. It's absolutely essential that RFID and IT planners be fully coordinated in their activities and timelines. With RFID deployments just around the corner, now is the time for IT to start aggressively planning for RFID.

David H. Williams is managing partner of E911-LBS Consulting, a management consultancy focused on helping companies strategically use wireless technologies. He is the author of The Definitive Guide to Mobile Positioning and Location Management and The Definitive Guide to Wireless E-911. He has a MBA in information systems management from the University of Texas at Austin and a bachelor's degree in electrical engineering from Purdue University.

Copyright © 2005 IDG Communications, Inc.

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